-UINN-23

>9wFIE LOPYINTERNA.TIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

REPORT OF AGRICULTURAL MISSION

PRESENT POSITION AND PROSPECTS OF AGRICULTURE

IN

JAPAN

January 3, 1955

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Currency Conversion

$1 Y Y>n 360$1,000,000 X Yen 360,000,000

Yen 1,000 UoSo$ 2.77778Yen 1 million XU.S,$ 2,778Yen 1 billion U.S.$ 2,777,778Yen 1 trillion U.S.$ 2,777,777,778

The Japanese unit of area in agniculture is:1 cho we 00991736 hectare

The unit of volume agricultural product in Japan is:1 koku * 5.010 bushels1 metric ton e 6.7 koku brown rice1 koku I 1500 kgo brown rice

Calorific Values

1 gram brown rice - 3.27 calories1 - brown rice - 3.27 kilo calories

A .le

All weights are expressed in metric tons

PRESENT POSITION AKD PROSPECTS OF AGRICULIEURE Il\ JAPAN

"ABLE OF CON TM1qTS

PAGEBasic Statistics

Conclusions j- v

I. In troduction 1II. Japants food problem

III. Land and populationIV. Food production, consumption and imports 3V. Prospects for the food supply of Japan 7

Vt. Land reform and economic position of farrmers 8VII6 Agricultizral services and the budget 9

VIII. Livestock development 14IX. Land developnment 16

X. The program for the future 25A. General Direction 25B. Action 27C. Spec;ific Projects 29

a) The Aichi Project 29b) Hachiro Lake Reclamation Project 30c) The Development of the Ishikari Valley 31d) IIechanical Land Reclamation and Import

of Cattle 32

D. Local Currency Availability 34

JAPANTE5SE AGRICULTURE

Basic S tatistics

Total land area 36,616,000 hectaresAgricultural area 6, 54h, 000 itForests 24h9503000 ttGultivated area 5,098,000 tPasture and grazing forest 77i,t00 "

Tree crops 303,000 "

Others 369, 000

Nufxber of f armas 6,180,000Agricultvral population 38,000,000

id % of total population 43% approx.Total imports (1953) $2, 101,000,000Food imports ,,8, 000, 000 ' .

(Rice, barley, wheat, beans,sugar, banana)

Total exports (1953) $1,15 6,0oo,000

C0MCLUSIOINS

A. General Situation

1. Assuring an adequate food supply for her groxing population isJapasts maost serious long-term econonmic problem. Japan imports today about3.5 mnillion tons of food grains. A further increase of at least 12 million.rln her population is to be expected before equilibriuun cean be attained.Assunr ng no increase in domestic food production, this. would imply totalannual food grain imports of about 6 mvillion tons. lerely to prevent deteriora-tion in lher curren Jly unsatisfactory food position Japan mnust grow 15% morefood (2.2 rmillion tOnls) within ten years.

2. Extensive reliance on greater exports to cover tlhe growing deficitwould be imprudent in view of the large increase wlhich would be necessary imany event to close the present balance of payments gap and the need for largerimports of other essentials which cannot be produced domestically. Conitraryto industrial production in Japan, food production requires very little importsof raw materials. In addition, the demiand for basic food is very inelastic.Increased food productionl thlerefore is prima facie the most econormuic rmeans toimprove the balance of payments position of Japan.

3. Japan is aware of the urgent necessity of increasing her food pro-duction. Exclusive of production and cons-omption subsidies, she devotesabout 11% of her niational btudget to agriculture. She carries forward wide-spread and highly effective research and extension work. She is vigorouslyexecuting extensive land reclamation and improvementi programs and spendslarge sums in restoring storm-danaged lands to production.

4. Japan has energ& tically exiploited most opportunities for increasingfood production tlhrough bettering yields on presently cultivated land. Hercrop yields are among the highest in the world and her research and extensionprograrns afford assurance that, in the field of rice culture, fuli1 advanta-ewill be taken of any future scientific advances. In ten years time, thismay fturtlher increase output by 900,000 tons. In the saene period, accomaplish-ment of Dhysical improvements wfhich appear to be possible in regard to 1.?million hectares of presently cultivated land is likely to cause a furtherincrease of 800,000 tons in domnestic food production.

q. JwiJpan's principal long terra and very substantial opportunitly foraugmeniting her food output lies in the exploitation of presently unutilizedlands. Land reclamation could, inL 10 years add 800,000 hectares to thecultivated areas and produce an additional 1,.100,000 tons of food amnually.The foreign exchange savinig of a 10-year land development programl of thissize would be about i',p2C0 million annually.

6. All these neasures put together could add a total of 3.1 mn:illiontons to Japants foQd production durin- the next 10 years. Fromn this wouldhave to be subtracted a production loss of 1 million tons as a result ofunavoidable destruction or conversion of presently cultivated land. Thus,a strenuous effort is essential to avoid, during the next 10 years, asubstantial increase in food import requirements. Over a 0onger period,if the population can be gtabjiised -the full utilization of presentlyuncultivated lanad could however reduce the present deficit.

7. The food consumption pattern in Japan has, particularly since 1941,been shifting away from a simple rice diet towards a larger consumption ofwheat and dairy products.. Increased quantities of food other than riceproduced under an intenisified upland crop and livestock prograrn, would beconsumed by the Japanese people,. particularly if prices were reduced throughmore efficient production and better marketing facilities.

8. BRealization of potential food production increases through landreclamation and improvement will require a vigorous and continauing effort anda large allocation of national resources over a period of many years. TheMission concludes that immediate and strong action is required.

B. Japan t s Agricultural Program

9. The fundamental importance of the food problem in Japan justifiesthe allocation to the program of a somewhat larger amount of funds. Anyslackening of effort would be a dangerous step away from national viabilityand toward increasirg reliance upon the assistance of others.

10, Certain adjustments and shifts in emphasis in the agriculturalprogram and policies seem particularly desirable.

a) Increased attention should be given to non-rice projects.WThile programs for inereasing the area and yield o. rice cultivat4on carriedon since the 18701s have achieved outstanding success, the point of severelydiminishing returns for this phase of endeavor is now being approached. Thesame sort of energetic national effort which has produced such good resultsin rice cultivation needs now to be applied to the cultivation of upland cropsand to animal husbandry. Without neglecting rice, which will remain the mostimportant single crop in Japan, the use of modern methods and equipment wouldbring much larger additions to the food supply than would an equal effortdevoted to fuirther improvement in rice cultivation. This will at the sametime improve the diet of the Japanese people. It would furthermore enableJapan to increase food production with less drain on scarce funds which arealso needed for industrial modernization.

b) Land reclamation should be greatly accelerated. It should berecognized that the basic objective of both land itnprovement and land reclama-tion is an increase in the domestic food supply and the present bias in favorof land improvement in current appraisal formulas should be corrected, Inthe next ten years an area of at least 80,000 hectares annually should bereclaimed.

c) More resources should be devoted to increasing livestock numbers.Present pasture and grazing lands are not fully exploited, and a sharpincrease in livestock through larger imports will be a necessary adjunct toincreased land reclamation. At least 2500 young cattle should be importedannually.

d) Greater effort should be focused on increased upland irrigation.In view of the large iii7rease in yields achieved with comparatively smallamounts of i.rrigation water, at relatively low cost, this is a most desirablephase of development. An annual rate of 20,000 hectare is a reasonabletarget for the next decade,

e) Increased emphasis should be placed on research and extension workrelating to upland irrigation, developing difficult soils, upland cropcultivation andmid. farming, and

f) Increased funds and credits should be provided for settlers.These two recommendations follow logically from paragraphs and (d).

g) The crop insurance scheme should be modified to reduce the drainon the Government budget, and

h) Adjustment of the present price subsidy system to producers andconsumers should be considered.Both measures are highly desirable in themselves and would have the markedadvantage of making more funds available for capital investment in agricul-tural development.

i) Current and projected land improvement projects should be carefullyre-examined and low return undertakings should be postponed in favor of highreturn ones, and

j) Available funds should be concentrated upon the rapid completionof projects now underway.

The last two recommendations would make funds available for larger develop-ment projects using new methods and also will bring earlier results frompast investments.

C. Request for Bank Financing of Agricultural Projects

1.1. Japan has requested a loan of $20 million for agricultural projectsand has submitted a considerable number of projects for the Mission's examina-tion. Four projects appear to be particularly useful for the realization ofimportant food production increases in Japan and worthy of further studylooking toward Bank financing. They are: Aichi Irrigation; Hachiro Lagoon;Shinotsu (Ishikari) Peatland Reclamation; and Mechanical Land ReclamationPilot Projects.

Aichi Irrigation

12. This multi-purpose irrigation, power and water supply project isparticularly significant in that it would involve undertaking the firstlarge-scale irrigation of" sloping land in Japan. Its successful executionwould give Japan a good start along this new and promising line of agricul-tural development, Cost is estimated at about Yen 25 billion and foreign

exchange needs at roughly $010 million. Prelitminary estimates indicate --thatthe return on capital investment on this project would be in the neighborhoodof from 12-1L4%.

Hachiro Lake Reclamation

13o Polder reclamation of the 22,000 hectare Hachiro Lagoon in Akitaprefecture would cost about Yen 15 billion and apparently bring a return oninvestment (including subsidies to settlers) of about 13%. The resultingannual increase in rice production would amount to around 50,000 tons.Foreign exchange cost is provisionally estimated at $3 million.

Shinotsu Peatland Reclamation

14h Among the promising land resources of Japan are the Tshikari 'iTalleypeatlands in which are found 30,000 presently unused but reclaimable hectares,and over 100,000 hectares which could be improved. Large-scale work isalready in progress in this area, but it is likely that the use of modern,high-capacity land preparation and earth..moving equipment not now availablein Japan can reduce construction cost and time. The Shirrotsu sub-divisionof this area appears to offer the best opportunities, the least difficulties,and the greatest return from the employment of modern equipment and methods,and seems therefore to be the logical area to first apply modern techniques.The total -ost of the Shinotsu project is about Yen 10 billion and theincreased producticn would have a value of over Yen 2 billion annually.Approximately $265 - $3 million worth of imported equipment and technicalservices would be required.

Mechanical Land Reclamation Pilot Projects

15. Introducing into Japan techniques of rapid, large-scale, low-costland reclamation appears to be a basic requiremenit £cfN improvement of Japan'slong-term food supply. Because of the lack of experienQe in Japan in regardto this kind of undertaking, the formulation and carrying out of three pilotprojects would be the first step. Provision of technical assistance andequipment necessary to test- out the potential of this approach in threedifferent areas would involve foreign exchange costs of around 51'1.5 million.If pilot operations are successful, expansion of this type of project wouldbe called for to the extent of another $3 million.

Further Preparation lieeded

16. The Mission found none of these projects fu:lly worked out andready for loan negotia,tion. The Government is engaged in further preparatorywork, which includes the use of foreign technical advisers.

Local Financing

17. The Mission recommends a program which over the next 10 years wouldcost Yen 385 billion in direct government expenditures and an additional Yen140 billion credit facilities for farmers and new settlers. 4tlud6a n

this expanded program are the four projects mentioned above, -which requireYen 66 billion over a period of seven years.

18. The need for additional funds over the currenat level of expenditure,of 30.7 and 13.5 billion respectively, is, on the basis of these figures,about Yen 83 billion over a ten-year period. The projects presented to theBank for its consideration could serve internal loans to an amounlt of aboutYen 35 billion and, if the projects prove to be bankable, Yen 7 billion mightbe obtained from IBRI). This leaves an amotnt of Yen 41 'billion to be obtainedfrom the budget. This amount, about Yen 4 billion on the average, might well

be obtained from saavings on food subsidies and agricultural insurance withinthe present budget of the Ministry.

19. Anz amount of Yen 35 billion loan funds will have to come from generalfunds, including the Trust Fund. Without basically changing the overallfinancial policy nmo beilng followed by Japan, it should be possible, particu-larly in the light of prospective additions to Japan's overall resourcesderived from sales of U.S. surplus agricultural products, to raise the re-quired local currency provided adequate priority is given.

PRESENT POSITION ANID PROSPECTS OFAGRICULTURE IN JAPAN

L. IWTRODUCTION

10 Conversations in December, 1953, between members of the Bankkts 1953Missiorn to Japan and Japanese officials indicated that the Japanese Govern-ment might welcome an examination by outside experts of its agriculturalprogram and of certain specific agricultural projects which it had underconsideration. This was reported to the Staff Loan Committee and the Manage-ment, and resulted in the Bank t s agreeing, upon receipt of a formal Japaneserequest, to dispatch an agricultural Mission to Japan during the summer of1954.

2. Further preparatory conversations with the Japanese officials in-dicated the hope that the Mission's findings would be made available in timeto be takei, into consideration in the formulation of the 1955 budget.

3. The terms of reference of the Mission were:

a) Acquaint itself in a general way with Japanese agricultural andanimal husbandry conditions and practices;

b) Familiarize itself with Japanese Government policies and programsdesigned to augment agricultural and livestock production, and consider whatallocation of resources to particular fields would tend to secure the greatestproduction increase within the next ten years;

c) Study specific projects for the increase of agricultural and live-stock production, and judge whether any might be appropriate for Bank financ-ing.

4. Prior to the departure of the Mission, the Japanese Government ex-Dreseed its wish to senure Bank financing to the extent of about $20 millionto carry out various land reclamation projects, outlines of which were sub-mitted to the Bank.

5. The Mission arrived in Japan on July 18, 1954 and departed forWashington,on September 21. Members of the Bank t s statf participating in theMission were Nalini Chalkravarti, Russell H. Dorr, John H. Hancock arid EgbertdeVries. Consultants were Carl B, Brown (Chief of the Planning Division ofthe Soil Conservation Service of the U.S.D.A.), David I. Luteyyn (Director ofa land reclamation company, Netherlands) and Krishnasamy Ramiah (AgriculturalOfficer on the staff of the FAO Regional Office in Bangkok). As arrangedbeforehand, the Mission in the first month was led by Russell H. Dorr, andEgbert deVries took charge of the latter stages of its work.

6. This report sunarizes the main findings and recormmendations ofthe Mission, with particular emphasis on comments which might be useful tothe Japanese Government in the consideration of its budget and agriculturalprogram.

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II. JAPANIS FOOD PROBLIE

7. Perihaps the most important single feature of Japan's present andprospective economic position is that she cannot feed her people withoutimporting large and ever increasing quantities of f ood from abroad, In 1953she imported 4 million tons of grains and otler staple foods and had to de-vote 40% of the proceeds of her merclhandise exports to pay for them'.@* Evenbefore the war it was necessary for Japan to import food to feed the 67million people who inhabited the four main islands, After the war, 6 millionindividuals were repatriated and the introduction of the use of antibioticsand other modern health measures reduced the death rate to appromfimatelyWestern levels. As a result, the population reached in 1954 approximately88 million. There is an annual growth of around 1.1 rmillion, and it appearsunlikely that equilibrium will be achieved below the 100 million mark.

8. The increase of the population compels a continual diversion ofagricultural land to use for dwellings, .oads and industry, and typhoonsevery year destroy considerable areas of cropland.

9. In the absence of effective measures to increase food productionabove the present level, it appears that essential food imports would mountin ten years to around 6 million tolns at a cost, at current prices, of$750 million a year.

10, Even if food import recluirements are held to something like theircurrent magnitude, Japan will still have to make a major effort to increaseexports merely to pay for imports at present rates of such essentials aspetrolewu, cotton, wool, phosphate rock, iron ore and colkng coal. At presenther normal export earnings are falling short of covering her imports by morethan $500 million a year. As her population increases, her imports ofessential non-food items will also have to increase, perhaps by as mulch as$150 million at the end of the next ten years. An attempt by Japan to capthese export increases by a further amount necessary to pay for constantlyaugmnteed food imports would boe of dubious practicability. It would, in anycase, unnecessarily intensify and embitter trade rivalry with other nationsand put Japan increasingly at the mercy of trade restrictions which mightbe unilaterally imtposed. Larger food productioni thus appears to be anabsolutely essential feature of any Japanese drive to make her own way and toachieve an independent economic position.

III. LAflD AN,D POPULATION

11. Japants population has increased from 36 million in 1880 to 88raillion in 1954. The area of agricultural land, including farm houses, grass-land and land used for rmiscellaneous purposes, increased from 4.5 nmillionhectarea in 1880 to 6 million in 1921. SLnce then, that area remailned rela-tively constant. There was some decline during the war and the lAv l6vel

If imports of sugar are included this figure increases to 45%.

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of a little over 5 million hectares in 19145 may be a result of incompletereporting, but by 1953 it was again around 6 million hectareso Crops occupyapproximately 5 million hectares, out of which 2.9 million hectares is ir-rigated paddy field.

12. During the period 1920/1948 land reclamatbion progressed very slov5-ly. Only about 600,000 hectares were reclaimed. At the sanme time, floodsand other disasters, as well as the encroaclment of cities, roads, airfields,etc., have reduced the agricultural area by 1.2 million hectares. Rehabilita-tion of damaged land was only possible for 200.,000 hectares. The net lossof agricultural land, therefore, has been 400,000 hectares.

13. The yields per unit area of principal crops increased about 60%since 1880 and JapaIn now ranks among the countries with highest yields. RiceYields average over 3 tons per hectare, wheat 1.7 tons, barley 2.1 tons andwhite potatoes 12.6 tons.

14. These high yields are a result of hard work of farmers, generousapplication of fertilizers and reflect widespread extension and researchwork done over more than half a century. In the southern half of the country,many paddy fields. and even some non-,iri"igated fields carry two crops annually,rice in sumrner and a variety of other crops in winter,

15. The average size of farms slowly decreased from 1.02 hectares in1880 to 0.93 hectare in 1945. If Hokkaido, which contains comparatively largerfarms is eliminated, the average is only 0.78 hectare. As a result, in spiteof high yields, more than half of farm households need supplementary incomefrom non-farming activities.

TIV. FOOD PRODUCTIONq, CONSUMPTION AlID IUVPORTS

16. By 1952, food production had recovered from the adverse effect ofthe war. Between 1934/38 and 1952, production of rice increased by about8%, wheat by 19%. This was mnuch below the population increase in the samieperiod (30%o). But barley production increased by 60%, potatoes 55% and sweetpotatoes by over 100%. The production of soybeans and oilseeds also increasedmore rapidly than population increase (Table I).

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Tk3TIE I

APPROXIMAkE ACREAGE AND ESTITV TED PRtODUCTION OF PRINCIPAL CROPS

Area Productioni92$3 952 1931X38 1952

(Thous. Hectares) MThous. m.t -

Wheat 684 720 1288 1537Barley 764 930 1758 2878Oats 125 82 176 138Maize (dry equivalent) 51 41 75 71Iillet 129 112 159 125Rice (padd:y) 3169 3004 11501 12404Sugar cane 6 4 190 98Sugar beets 17 13 303 240Potatoes 151 197 1622 2515Sweet potatoes 248 377 3060 6205Dry beans 193 176 178 208Dry peas 41 14 41. 17Broad beans 36 29 50 34Soybeans 326 410 321 521Groundnuts 8 25 12 23Linseed 17 18 5 4Rapeseed 103 222 120 282Sesame seed 5 9 4 6Tea 39 30 49 57Tobacco 35 55 63 96Flax fiber 17 18 5 6Hemp fiber 6 4 4 3

Vegetables 411 443 5986 6540 (1950)Fruits 276 108 1201 1448 (1950)

blulberry 594 176 43(raw silk) 11 (raw silk)

Fodder and green manure 481 367 5377 4183 (1951)

17. Total food production on a calorific basis decreased by about 10%

per head of population during the last 20 years. Only by virtue of inQreased

imports, could per capita consumption in recent years recover to the prewar

level of 2100 - 2200 calories, a great improvement over the desperate con-

ditions which prevailed immediately after the war. Table II shows the avail-

abuility of food, from domestic production and imports together, in selected

postw,ar years as compared to prewar.

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AVAILABILITY OF FO)OD(grams per person per day, -unless otherwise indicated)

Product 1934/36 1947 1950 1953Rice 361 292 302 297Uheat 26 58 73 75Barley 38 36 65 55Main cereals 30 4 27

Sweet potatoes 63 93 93 66White potatoes 14 41 43 42Sugar 32 1 8 27Bean paste 28 15 18 28

Fish 40 27 40 53MIeat 6 4 6 7Eggs 6 1 2 7I4ilk and milk products 8 7 15 24

Edible fats and oils 2 1 2 4Vegetables 203 142 174 192Fruits 56 24 42 42

18. This table shows that total cereals consumption is back to normal,but rice has been partly replaced by wheat and barley. In the list of foods,white potatoes and milk have trebled on a per capita basis, and edible fatsand oils hlave doubled. These changes, in such a comparatively short time,must be considered spectacular. Rice provides now for 50" of the calorificintake, against 60% prewar.

19. It is the contention of many people in Japan that dietary habits cannotbe changed except in case of a national emergency. The available figures show,however, that a long-term shift is taking place. Bread grains and barley impo-tshave increased after the war in first instance out df n6cossity, but nodw ambeing maintained, in the diet together with dairy productcs and potatoes as aresult of a desire for a more diversiied. diet. It appears that this shiftis retarded by the absence of sufficient supplies of products for which demandis increasing.

20. In the circunstances, t,he developmenit of upland fields, pasture landand double-croppinu of paddy fields, all of which change the emphasis away fromrice, is in accordance with this trend. Even if the shift to barley and wheatdoes not go further, there is a large raarket for increased production in viewof the substantial current imports of these foods.

21. An even more important effect of bribhgiDg unused land into producticinvould be the growing of m6re so-called protective perishable foods. From thestandpoint of a balanced diet, food cornsumption is still one-sided. The pro-duction of fruits and vegetables has not even kept pace with population, andprices are unnecessarily high. With regard to dairy products and meats, thesupply is insufficient. the marketing is deficient and. prices are consequentlytoo high for the mass of people. However, increased production could, withbetter marketing facilities, easily be chan-neled into the large cities at lower

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prices. For instance, prices of milk could ba'&aefad^ensiadral52 B>tairies

were larder; .facilitating the -collootion -a:- milk, and: 1it1'S0st--distft -

blation dimirLished -becaxase of larger quamitities. lWith lowrer prices of m'lk' -

and meat the demand would incr6Ase- eonsiderably.- It rmust. also bd 'eradMiMPed

tkat the marlcet .is :not larger s"ince the turill j5opulation, thanks to td` ;'

beneficial effects of laftd roforni is now abetto'66nStte re pr teaCi§tv&

floads (see..3ar, 3.6). The only surplus to bEI-onvisagedvwould beM np&toes,

but in mixed farming; it would be easy to c-cinvert pbtato,s into nlchliiedd,,presently high-priced pork* hJed

22. Whereas perishable products, with minor exceptions cannot be eco-

nomically imported, the balance of requirements of basic foods is being met

by imports. Table III compares prewar imports with 1952.

TkBLE III

APPROXIMATE FOOD IIVPORTS(in thous. m.t.)

193L/38 1952

Rice (milled) 1757 973

WNheat and flour 315 1666Barley 295 946Maize 196 67

Sugar 970 793Dry beans 125 5

Bananas 122 41

Soybeans 737 167Gro'undnuts 20 8

Cotton seed 90 27

Rapeseed 29 2

Sesame 20 5

Castor beans 28 13

Oilseed cakes and meal 723 4

Edible oil 11 L4

23. As compared with prewar, imports of rice decreased by 800,000 tons,

but wheat and barley imports increased by 2 million tons. Maize imports are

for animal feed rather than food. The loss of the overseas territories of

Japan resulted in diminished imports, not only of rice, but also of sugar,

bananas, pulses and oilseeds. Imports of mnjor food grains during 1951, 1952

and 1953 were of the order of 3 million tons, 3.6 million tons and 4.1 mil-

lion tons respectively. The present annual import requirement is betv'reen

3.5 and 14 million tons of grains. Japan now imports between 20% and 25% of

its basic food supply (on a calorific basis).

24. For food imports, Japan spent foreign exchange to the equivalent

of U.S.$ 549 nillion in 1952 and $558 million in 1953, 45% of its total ex-

port trade earnings i-n those years. Because of the bad rice harvest in 1953,

imports in the first half of 1954 were at an even higher rate.

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25t The Itinistry of Agriculture estinates that population increase willby 1960 require 1.2 .nilli3n tonls additional food (brown rice equivalent).Also, it foresees that conlversion of agricultural land for urban sites androads and dam,lage to land as a result of floods and erosion, will decreasethe procluction potential in five years by 0.5 million tons. In other words,it is estimated that the present deficit will be increased by 1.7 milliontons by 1960, unless measures are taken to rehabilitate damaged lanzd,increase yielzds on existing land, and reclaim new land. By 1965, thedeficit would have grown another 15 million tons.

V. PROSPECTS FOR TEE FJOD SUPPLY OF JAPAN

26, Aster the war, when the food position was desperate, the JapanleseGovernment acted to strengthen the position of agriculture in Japan. Threemain measures were taken immediately. In 1947, a sweeping land reformimproved the position of the peasants considerably, and in 1948 the wholecotntry was surveyed for possibilities of land reclamation and improvement.At the same time, an unprecedented land settlement scheme, mainly to settlepeople repatriated from Korea and Manchuria,, was started.

27. There is general agreement in Japan on the necessity and urgencyof these measures. Balance of payments considerations would force Japan togive high priority to food production under any circumstances. The Govern-ment is now carrying fonrard with these measures and recently has repeatedlydeclared that increased food production has foremost priority.

28. It does not seem feasible to rely on ever-increasing imports tomeet the widening gap. As far as the purchase of cereals and sugar fromNorth America is concernied, Japan would not have the means to buy therequired quantities from this source out of its dollar earnings. Onlydomestic production of basic food can make Japan less dependent on grants.It may be assumed that trade with South East Asia can be expanded; this willrelieve the dearth of fats and oils and sugar and to some extent of rice.In regard to the latter it should be noted that there will be strong consumerresistance, The rice varieties produced in Burma and Thailand have beenused in Japan for human consumption only in an emergency or by the lowiestincore groups. And even the most optimistic view of tradewith othercourtries in Asia could not envisage an adequate supply of badly neededperishables. Only action to maniize domestic f ood production can substan-tially ease and inprove the food position which will othEfise inevitabllybecome much more difficult .

29. Rightly therefore, the Govermiient holds the view that Japan shouldexpand its domestic food supply to the limit, determined by the technicalorgarnizational economic and financial feasibility of projects, and in itsbudgetary appropriations gives high priority to accomplishlmient of this aim,

VI. LAND REFORIM AND THE ECNOIMOv!IC POSITION OF FARYIERS

30. The prewar land system of Japan was characterized by widespreadtenancy with high rents for land. About 70% of Japanese farmers rented allor part of the land they cultivated. Rents were mostly in kind, often amount-ing to more than 50% of gross production.

31. In 1947, the government enacted legislation for the land reformprogram. l.ost tenant-cultivated land and holdings operated by owners, ex-ceeding 3 hectares (12 hectares on Hokkaido) were purchased by the government.The land was transferred to former tenants and other landless farmers. Near->Y 30 million pieces of land (approx. 2 million hectares) were thus purchasedand resold. The payments by the Government, on the basis of prewar land va-lues, were made in 24-year bonds bearing 3.6%o interest. New owners couldpay in 24 equal annual installments with interest at 3.2%.

32. 88% of farmers now own all or more than half of the land they cul-tivate and 95% own some land. The area under tenancy is less than 10(% oftotal agricultural land. The law also forbids the re-emergence of absenteelandlords or the concentration of land in the hands of a few.33. The land reform applies only to agricultural land. Large landowners may therefore maintain holdings classified as forest land. Such aclassification is made if the density is more than 4%. It is believed insom.e quarters that large areas of arable land are not reclaimed and cultivatedbecause the ownlers fear that it will then become subject to the limitationson maximum holdings of the Land Reforma Law. The Ivlission was not able to se-cure exact data as to the extent to which this is true. It is clear, however,that the national interest requires that all arable land should be cultivated.To this end the survey and reclassificationi of all forest land would be anecessary first step. It would also be important to provide incentives forthe private agrioultural development of such forest lands and to make it clearthat, if such development is undertaken, private ownership will be safeguarded.

34. As a result of land reform, the number of holdings increased great-ly, but the number of farmers did not change much. In an attempt to dividethe land evenly, very small holdings are common, One-third of the farms con-tain less than 0.5 hectare. The problem of too many workers on too smallholdings is partly met by sons or daughters serving in cities and factories.

35. It is estimated that half of the farm population depends in varyingdegrees upon income from non-agricultural occupations. A sample survey slxwedan average income per household consisting of 6.5 persons of 300,000 Yen,two-thirds of which was derived from agriculture. Farmers are consi-deredto constitute 43% of the population; and direct agricultural income is 22%cof national income; therefore farm households would earn about 33% of nationalincome.

36^ Thanks mainly to reduced rents, farners are much better off thanbefore the war. The standard of consunption in the rural districts in 1953was 30% above prewar, whereas in Tokyo it had just regained the prewar level.The level of clothing and fuel/light consumption in the rural areas had risen

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60 and 50% respectively, and food consumption 27%. In the latter figure,consumption of staple food (index 103) was the same as prewar, but non-staple food stood at 156. Thus, farmers had improved the quality of theirdiet, presumably because the urgent need to sell anything marketable, haddecreased. This important and commendable shift makes increased productionof non-staple food the more urgent in order to satisfy the need of the citypopulation.

VII. AGRICULTURAL SERVICES AND THE BUDGET(a) Governmental Expenditures for Agriculture

TIBLE IVTHE MAIN CLASSIFICATION OF THE NATIONAL EXPENDITURE TO AGRICULTURE,

FORESTRY AND FISHERIES(Million Yen)

1950 1951 1952 1953 1954

(a) Executive expenses of Govt.Bureaus, etc. 4,585 6,929 7,037 8,910 4,082

(b) Services to farmers

Improvement of farm techniqueand equipment by promotingthe use of improved seeds,fertilizer, medicine, im-plements, etc. 939 1,692 3,062 6,132 2,,419

Extension services, includingexperimental stations, de-monstration farms etc. 1,491 2,108 2,387 2;626 2,755

Promotion of land reform pro-gram inicluding compensa-tion for deficits in pur-chase and sale of lands 3,222 1,,477 981 953 706

Expenses for management ofAgricultural commissions,Agricultural cooperatives,etc. 1,770 3,250 4,786 4,015 2,908

Livestock department 773 1,179 1,443 1,778 2,212

Silk'sulture 366 3,529 779 901 976

(c) Agricultural Insurance, (in-cluding managerment -expenses, part payment ofpremiums, com,pensation fordeficit, etc.) 5,599 9,653 12,266 19,424 16,048

10

TABLE IV (cont 'd)

1950 1951 1952 1953 1954

(d) Land Development

Improvement of cultivated landsby irrigation, drainage,etc. 5,072 9.,138 12,882 16,556 17,767

Reclamation of new lands forextension of cultivationi,'Lnc-liding public works- -insettlement areas 6,734 6,65o 10, 97 12,678 13;004

Restoration of lands damagedby typhoons, floods, etc. 7,196 7,558 12,020 21,882 17,610

(e) Provisions for agricultural1lans

(a) 'ransfer tc Loans forSettlers Fund 1,366 1,574 1,651 1,8114 1,520

(b) Transfer to Agriculture,Forestry & FisheriesCorps - 5,000 6,500 20,593 9 ,500

(f) Forestry department 6,685 lo0557 11,939 15,726 1?,973

(g) Fisheries department 2,716.5 3.Sh,4a 6:yZ7 .,6 5,1$S

TIOATPL 4&.5L43 73,836 94,958 lhiO284 109l909

Special Accounts:

Provision for agricultural loans;(a) Trust-Fund investment in

Agriculture, Forestry &Fisheries Corporation - 3,000 11,000 5,000 10,50Q

(b) U.S. Aid Counterpart Fundinvestment in Agriculture.,Forestry & Fisheries Crop. 4,,ooo 3,000 - -

Transfer from General Accountfor Food management includingprocurement, rationing, subsidy,price support, etc. 12,692 hh,845 h9,995 37,827 11,298

Grand Total 61,235 125,6b1 158,953 183,111 131,707

Total in U.S.$ equivalent(millions) 170.1 348.1 444.3 508.6 365.8

37. Most of the expenditures for promoting agriculture are includedin the Budget of the 14inistry of Agriculture, Forestry and Fisheries. Thebudgetary figures over the last five years are given in Table IV. Distinctionis made between the regular budget, which includes capital expenditure forlend development as well as general administration and service to farmers,and transfer from the General Accoult to Special Accounts for credits andfood subsidies. Part of the regular budget also is transferred to agenciesgiving credits to farmers. In the 1954 budget, the following main groupsof expenditures (in billion Yen) are provided for:

General administration 4Services to farmers 12Agricultural insurance 16Food Subsidies 11Land Development 48Loans to farmers 22Forestry 13Fisheries 5

T!)tal 131

Excluding the Yen 10.5 billion from the Trust Funds, Govenlment expendituresfor agriculture amount to 120 billion Yen, 12% of the total Government bud-get ($330 million equivalent).

(b) Research and Extension

38. The Japanese Government, at the end of the last century, had beenone of the first in the world to organize services to farmers, mainly de-signed tQ improve yields on existing land and stabilize the income of farmers.Japan has a large number of research and experimental stations; nearly 4X000personnel are employed on this work. This has contributed largely to thebreeding of better varieties, pest and disease control, soil and seed treat-ment. The increase in yield per unit area of rice, wheat, barley and nakedbarley, by 70, 140, 119 and 62% respectively in the past 60 years, is duemainly to this research. Further increases are likely to be smaller; theMission considers over the next decade an average increase in yields by 6%feasible. The work on rice is of particular outstanding quality and scope.However, we found that upland crops, pasture land and aniimal husbandry havein the past been consistently neglected. Also effective treatment of peat-land and young volcanic ash soils in the northern part of the country deservesmore concentrated attention in view of the large areas which can be put intoproduc tion.

39. The extension service, spread all over the country (over 11,000officers) is efficient. Practically all farmers can read and write and Im1ostof them own radio sets. Therefore, the extension service can reach them

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without difficulty. In addition, there are 52 agricultural training centers.The Miission was greatly impressed by this work.

(c) Cooperatives

40. In Japan there are cooperative associations everywhere; all farmersare mermbers of one or more cooperatives. The cooperatives are broadly oftwo types. The general cooperatives undertake marketing of crops, purchasefarm supplies and household goods, process members' products, receive depositsand make short-term loans to them. The special purpose cooperatives confinetheir activities to the handling of one commodity such as cocoon, dairy pro-ducts; fruit, tea, etc.

41. Local cooperatives are associated in prefectural federations andthese in turn are members and stockholders of the Central Cooperative Bankof Agriculture and Forestry. The Central Cooperative Bank pools all resourcesof the cooperative system. In June 1954 deposits with the local, prefecturaland central cooperative banks amounted to 263 billion, 111 billion and 1l43billion 'Zen respectively. Loans and discounts at the sa?ne time stood at 160,106 and 160 billion Yen respectively. Farmers owned net 64 billion Yen intheir cooperatives. In September, just before harvest time, the last figureis lower, but after the sale of crops it is much higher. It may be concludedthat the cooperative movement is well run, financially sound, and the fi.nncialbackbone of Japanese agriculture.

(d) The Agricultural, Forestry and Fisheries Coporation

42. The long-term credit requirements of farmers are ordinarily metby this Corporation, which is an autonomiious Government agency. Its loansare mainly for restoration and improvement of land, establishment of workshops,warehouses, purchase of livestock, etc. In June 1954, the capital subscrip-tion by the Government (including U.S. Aid counterpart funds) stood at Yen38.5 billion, the amount borrowed at Yen 24 billion and the loans outstandingat Yen 60 billion approximately.

(e) Loans to Settlers Fund

43. Long-term Govemment loans are also available for new settlers inreclanation project areas. These loans are given to the farmers from aspecial account of the national treasury for building shelters, purchasingfarm implements and animals and for sijilar uses of agricultural inventorycapital. Approximately Yen 1.5 billion has been annually appropriated tothis account by the central Government during the last 5 years. As will beseen when the land reclamation program is discussed (Para. 97), this amounthas been insufficient to provide all new settlers with sufficient funds.

44. With this exception it appears that both long-term and short-termcredits are made available on a reasonabl7y genierous scale to meet the seasonaland long-term needs of the farmers. The facilities for obtaining such creditsalso appear to be satisfactory. Wie are not, however, sure that the presentadministrative arrangements for providing long-term credits from the Settlers

Fund, under which the loans are collected through the Prefectural Governmentagencies, are quite satisfactory. As a rule, these loans are made throughfarmers associations to individual members of the groups, and the Missionconsiders it better to utilize the cooperative banks for the collection ofloan funds on behalf of the Government. The village associations have theirregular finaricial relations with the cooperative banks and the latter arebetter equipped to administer the collection than Government officials. Thisdoes not mean, of course, that the cooperative would be responsible for makingthose loans.

(f) Agricultural Insurance

45. Natural disasters make agriculture a precarious occupation in Japan.Agricultural insurance to reduce relief expenditure, prevent social unrestand encourage production was initiated by the Government in 1929.

146. The system was changed and expanded in 1947. Under the preserLtsystem, each village has its insurance organizations; these are federatedat the prefectural level and in turn they reinsure their risks with the nationalGovernment. 1I'embership is comlpulsory for all growers of staple crops andin most areas for owErners of cattle and horses, The maximeum insurance coveragefor crops is 50% of the value of normally expected yields. No benefit pay--ment is made unless the yield falls below 70X0 of the rated nornial yield.The premium rates are based on the probability of damages established statis-tically; the Government bears 50% to 60%o of the risk.

147. WVihile recognizing the need for an insurance system in the agricul-tural economy of Japan, the IMission was distuurbed by the heavy drain which itit causes to the NQational Treasury. The central Governmient spent in l952/54Yen 12.2 billion, Yen 19.4 billionu and Yen 16 billion (estimate for this pur-pose. These are serious deficits and serious attempts should be made to re-duce them. We understand that the matter has been under expert exanmnationsince 1951, and presumably adequate data should now be in hand, but apparent-ly no solution has yet been found. The i-ission feels that adjustments willbe necessary both in the rates paid by farmers and in the methods of assess-ing damage.

(g) Food Subsidies

48. Since the 1920's, the Government has taken various measures toregulate agricultural prices. These have iincluded Governmlent purchase,rationing, price-fixing, and subsidies to producers and consumers. The farmeris still under an obligation to sell a certain proportion of his rice to theGovernment at a price fixed by a parity formula. Preiniums are given forearly delivery, complete delivery and e-xcess delivery; this year these pre-miums have been greatly reduced.

49. In recent years, the Goverr,ment has handled about one-third of thetotal rice crop; it paid in 1951 through 1953, 7,400, 8,60o, and 10,300 Yenper koku respectively. Rice is sold to consumers at an official price belowprocurement and handling cost and the difference is paid out of a Government

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subsidy. It appears from the figures given by the Ministry of Agriculturethat this subsidy was 1% of the procurement price in 1952 and 10% in 1953.This year the average procurement price is 7% below last year but the priceto consumers remains the same and conlsequently the subsidy will be reduceddrastically.

50. All imported rice is also purchased by the Government. The consumerprice is differentiated. Rice of comparable type (e.g. Califormia rice) issold at domestic prices, but rice from South East Asia is sold at a much lowerprice in order to overcome consumers resistance. The difference is met bya Government subsidy, which amounted to Yen 48 billion in 1952 and Yen 29billion in 1953. With lower price in Asiatic export countries and sonmewhatsmaller imports, it is estimated that this subsidy will cost Yen 9.4 billionin 1954. 'The need for subsidies on imported rice will diminish as priceson the world rmiarket drop further.

51. Viheat, barley and naked barley are also purchased by the Governmentand subsidized to some extent in order to maintain an equilibriunm betweensupply and demand. The cost of these operations amounts to Yen l - 2.5 bil-lion annually.

52. The subsidies to keep farmers income at a reasonable level are onlya small proport.on (1-3% in recent years) of f armers inicome from rice. TheGoverrw,,ent should therefore carefully consider the restoration of free mar-keting of domestic cereals - with a Govenmment guarantee of a floor price.Through the regulation of imports, the Government could, without too muchdifficulty, prevent violent changes in prices on account of variations inyield. The restoration of free marketing w-ould not affect the price levelvery much if it were introduced in a year with a normal crop. It wmuld de-prive some areas of "black lziarket profits," which are a corollary of ration-ing in the cities. Also, consumers rnight have to pay slightly more for theirbasic ration, but would benefit from the disappearance of black market prices.The Government would save Yen 500 million in administration, which could bedirected to capital investments in agricultural projects, thu,s making foodmore plentiful.

VIII. LIVESTOCK DEVELOPMENT

53. Until recent times, livestock has been of little importance inJapan. Hor;ever) in the late 1930's an upswriing occurred in cattle, sheep andgoats. This developmient was interrupted by the war, but from 1946/47 onwardsthe increase has been very rapid. The number of horses is diminishing.

15

Number of Livestock(in 1000 units)

Average1934/36 Low postwar 1954

Dairy cattle 100 159 356Beef and work cattle 1,590 1,830 2,540Sheep 48 180 732Goats 123 222 ?'lgs 1>,051 88 832

Horses i,500 - 1,000

54, The Li-vestock Department of the lirnistry of Agricalture has initiatedan ambitious program of livestock promotion, through extension services, sub-sidies and loans. Its aim is to increase in 10 years time the nunbers exist-ing in 1951 by the following percentages: dairy cattle - 430; draft and meatcattle - 130; sheep - 420; goats - 250; and pigs - 160.

55. Livestock products, especially milk, are expensive in Japan. Withincreased and more efficient production arid distribution, prices to consumerscould be lowered considerably and consumption would rise accordingly. Thiswould be in line with long-terni shifts in the dietary habits of people inJapan.

56. Cattle prices are very high due to high cost of rearing (inefficientpasture management) and a demand which outstrips the total potential naturalincrease. The price of young dairy cattle in Japan is three times the cor-parable Nievw Zealand price.

57. Twenty-five percent of the population shovws signs of deficiencydiseases which could be remedied by more milk consumption. Large areas ofland are potentially suited for pasture but too steep for field crops. Inaddition, there are over 1 and 2 million hectares of land bearing a coverof wild grasses, shrub and thin forest which could be reclaimed into relative-ly high yielding grass lands.

58. i\/uch of the upland farrming in Japan cannot thrive or even surviveunless livestock becomes an integral part of the farming pattern. In viewof the livestock shortage an accelerated land reclamation, and settlement can-not be executed successfully without the irmportation of sizeable numbers ofyoung dalry cattle. The N;ission therefore attaches great importance to aplan for buying young animals in New Zealand and Australia (see par. 138-140)

59. The dairy industry is protected through high import duties, but thismakes milk expensive without assisting the dairy farmer effectively, as longas the volume of milk on the ;narket is too small for organizing an efficientmnarketing and distribution system. The use of dried milk for reconstitutioninto fluid milk., either from domestic sources or from imports, would eliminatethe seasonal fluctuations of supply, would increase the volumne of milk andreduce unit cost of handling and distributLon. Expanded dairy factories wouldbe the best inducement to increase dairy herds. The Mission recomrm-.ends athrough study to find and implemIent practical measures to achieve these goals,beneficial to consumers and producers alike.

IX, LA\TD DMLOPIVB1 \IT

60. About 50% of the budget of the Ifinistry of Agriculture is spent,through its Land Bureau, for land reclamiation, improvement and restoration(after natural disasters). Reclamation a-±d improvement together (landdevelopment) account for over 30% of the budget. The i'Enistry provides outof its budget capital for the Agricultural, Forestry and Fisheries FinanceCorporation (Yen 6.5, 20.5 and 9.5 billion in the last tharee years) andabout Yen 15 billion for the "Loans to Settlers Fund". In 1954, all thesepurposes take over 60% of the agricultural budget. Even from these suxnmaryfigures, it can be concluded that in recent years the government is spendinglarge sums of money on land development and reconstruction.

61. The YLission spent a considerable part of its time 01o a survey andappraisal of the work of the Land Bureau, for more than one reason. In thefirst place, the government, preparing its 1955 budget, based on a retrenchmentpolicy, asked the Iviission to appraise the effectiveness of the present programiin the light of the proposals of the linistry of Agriculture to enlarge theprogram greatly for the next five or ten years. Secondly, any possible Bankfinancing for agriculture would have a bearing upon the program of the LandBureau. Thirdly, the future of the food supply of Japan, and the country'sprospect for a viable econormy, depend largely upon the success of the LandBureau's endeavors.

a) Governmental organization

62. The center of technical plamninag and project developm,lent is theAgricultural Land Bureau of the Ministry of Agriculture. It has 430 employeesin Tokyo and 2,700 in seven regional offices and 90 branch offices. Itsfunctions include land classification and purchase, project planning, con-struction of works for irrigation and drainage, land clearance and settle-ment. On Hokkaido, however, an independent bureau under the Hokkaido Develop-ment Agency, performs similar functions.

63. IMch of the planning technique now being used was introduced since1945. The Mission was greatly impressed by the enthusiasm of all and theskill and ability of the officers of this Bureau. Its top men are of out-standino ca-ability. The methods now, used for traditional projects areaddquate. For some new types of developments, as mentioned below, anopportunity should be provided for Japanese officials to survey projects inother countries and some technical assistance from abroad would be necessary.

b) Land classification and purchase

64. The 1947 surve-y of the Bureau indicated that there were in Japan5.5 million hectares of land, technically capable of being reclaimed. How-ever, only a part of it could economically be developed under present condi-tions. A later detailed survey of about half of this area indicated thatabout 2.5 million- hectares wTould be immediately suitable for reclamation,Since that time the government has purchased 1.4 million hectares. Othersurveys showed that out of 3.0 million hectares of paddy field, 2.5 millioncould be i-mproved and that there is scope for irrigation on 570,000 hectaresof upland fields,

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c) Land reclamation

65. Available statistics show that since 1948 about 1 million hectareswere "reclaimed or under reclamation". Of this up to 1952, an area of436,o0o hectares were actually reclaimed, but a large part of it is not yetin Lull production. The program includes 517 projects, containing 111,800hectares planned and started since 1952. The cost of these projects was aboutYen 250,000 per hectare reclaimed, not including other government funds madeavailable for essential supplies, fertilizers, livestock, dwellings, lightingand community facilities. The total cost is not known but it is known thatwith an average of 3.35 hectares provided per settler, the government subsidyper household was Yen. 1.1 million,

66. Assuming that 500,000 hectares have been effectively reclaimed since1948, there would be 2 million hectare reclaimable land. The Land Bureau has800,000 hectare on its books suitable for reclamation, and the area "underreclamation" would be 500,000 hectares. Preparations therefore have'been niadefor expanding tfie present: rate of the prbgrano-

67. The MEission is convinced, from statistical evidence and a samplesurvey of conditions in the field that the ultimate potential is even higher.So far, the Bureau has, with a few exceptions (mainly on Hokkaido) under-estimated the feasibility of establishing productive grassland. There may bean additional 1 or 2 million hectares where grazing and shrub land could beconverted into highly-productive pasture land. V'Tith better methods more land,now considered teclhnically suitable but economicdlly urxiuit6Lble, could bebroug,ht into production. Thirdly, as rilentioned before, large areas whichare classified as private f orest might eventia-L;y iDecome good crop 2and.

d) Seashore reclamation

68. The Land Bureau had, in 1953, plans for the reclaxmation of 62,000hectares of seashore or lake bottoms into fertile rice lands. From 1946through 1952 about 5.,000 hectares had been reclaimed. Only two or threeareas appear to offer possibilities for reclamation of more than 1,000hectares each. From the standpoint of total area subject to reclamation andhigh cost per unit area (with one or two exceptions) seashore reclamation isnot a very significant part of the total resource potential,

e) Land improvement

69. The 3iniprovemi-ent projects under execution or consideration by theLand Bureau in 1953 involved in terms of se-arate practice nearly 5 mLillionhectares, for the following measures (in 000 hectares):

Irrigation improvement 890Drainage improveraent 1,300Seed-bed warmiiing; 150Soil dressing for

poor soils 4.50Boundary readjustment 1,500

Total, paddy fields 4,290

On many areas, however two or more of these types of improvement measureswere being carried out and hence the aggregate acreage affected is unlmown.

f) Cost and benefits of total program

70, The Land Bureau estimated that with a public expenditure of Yen 1.1trillion, an additional 3.7 million tons brown rice equivalent could beproduced. The main parts of the program would be:

Cost Yield Cost per ton(1 billion Yen) (1000 tons) (1000 Yen)

Land reclamation 160 1,080 l50Seashore reclamnation 140 320 440Paddy field imaprovement 630 1,650 380Upland irrigation 11.0 650 170

Total 1,140 3,700 300

71. It will be observed from this data that the proposed expenditure ongeneral larnd reclaxation and upland irrigation will be far more productive inadding to the nation's food supply than would be an equal outlay for landimprovement and seashore reclamation. General land reclamation and uplandirrigation would malke available 46% of total increased f ood output at a costof only 27% of the total expenditure. To put it another way, the effective-ness of a given ex,penditure on land reclamation and upland irrigation is morethan twice as great as that of the same expenditure on land improvement andseashore reclamation.

72. Furthermore, a comparison of the costs of land improvement projectsalready under way with those of such projects under consideration suggest thatexcept in Hokkaido the point of rapidly cdiminishing returns is at hand forthis type of activity and that many projects definitely deserve no priorityand maybe even in the long run prove to be uneconomic. This is illustratedby the table given below showing the estimates arrived at in a study by theLand Bureau of about half the projects on its books.

Increased Cost perCost yield *' ton

Muiumber (Billion Yen) (1000 tons) (1000 Yen)MainlandLand improvement projects-

Under construction 456 107 382 280Planned but not started 138 32 107 300Under investigation 382 155 337 470

HokkaidoLand im-provement projects-

Under construction 164 19 75 260Planned but not st-arted 10 2 8 250Under investigation 114 32 132 240

*tBrown rice equivalent.

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73.. These broad cost comparisons indicate that, to the extent that fundsfor increasing food production are limited (as they oraw are), priority should

be given to land reclamation and upland irrigation. The criteria presentlyused by the Land Bureau for appraising relative priorities of land improve-ment and land reclamation projects stand in the way, however, and in theopinion of the Mission need modification. Looking at the mnatter fromn thestandpoint of strengthiening the economy of Japan, it seems clear that suchprojects should be rated on the basis of their tendency as rapidly and ascheaply as poo;sible to augment the food supply, increase the total nationalincome, and establish the maximum number of new farm households. In fact,however, other considerations now play mn equal if not greater part in the

evaluation process.

74. A principal distorting effect is the method of computing benefits.As to projects designed to increase yields the benefit is calculated by sub-tracting fromn the value of the additional crop the expenses required to pro-duce such a crop (such as seed, fertilizer, mainteaance and depreciationventories, and so forth). As to projects enlarging the area under crops

how-ever, the formula also deducts the valuae of the entire consumption of the

fxmlily producing the additional food. The effect of the project in providingfood and income in general to a new farmer and his family is treated not as

an asset but as an expense, not as a benefit but as a cost.

75. The formula is fair enough in appraising the capoability of a newfarm as a business -unit to repay debt and might reasonably be adhered to inestablishing different scales of subsidies and terms of repaynents by fanrmers.As a means of weighing the contribution of a project to the national economy,however, it is entirely unsound and misleading. The consunmption requirementsof the family which is to work the land are not a new cost to the economyundertaken as a part of the reclamation project. On the contrary, they are acharge which must be borne by the economy as a whole entirely irrespective of

whether or not the project is undertaken. The new settlers are rmostly "second

or third sons" for whora there is no labor npportunity on the home farm but arenone-theless consumers no' natter. -there they.. li.ve or 'hoc they earn a livel-ihood.Bringing untbed land inlto cultivation or providing-for double cropping clearlyprovides newa means of meeting. the exponse.whiQh h-wuld otherwTise have to I?emade by the nation out of other resources.76. The distorting effeot of application of the formula is serious. The

benefit of a rice-prod-ucing -yield improveement project is appraised as 72% ofthe value of the crop increase. The benefit of a rice-producirng land reclarna-

tion project, howGever, is appraised at only 28% of the gross. Where lessvaluable crops are involved the bias atainst reclamation projects becomes even

more marked. In regard to wlheat and barley pro duction for example, the benefit

is rated at only 11-12% of the gross for land reclamation bDut at 65% for yieldimprovrement.

77. In the case of reclamation projects producing other crops than rice,treatment of the provision of employment and maintenance for new settlers asa cost rather than a benefit results in the assignment of very low priorityor the exclusion of many projects which would help to alleviate Japants food

and employment problems. Under the existing formula only the most spectacu..larly fruiitful non-rice projects caxi compete with rice-producing yield improve-ment projects since despite Japan's need for increased amounts of non-ricefoods a rice-producing land improvement project i s credited with six- tirmesrthebenefit of an equivalent wheat-producing land reclamration project.

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78. ExamLiation of the proportion of expenditures in land improvementv:ersus land reclamation expenditure, shows an increasing tendency during the

last four years to devote fuLnds to land improvement. The ratio was 100 to 61

in 1950 but was raised to 100 to 1.36 in l1954 (see Table IV, page 10). This has

occurred despite the strikingly higher food yield per unit of cost from the recla-

mation projects, The following table gi-ves an idea of the actual advantage of

reclamation over imnproveement projects and the way in which this is concealedif the formula is applied.

IEnivestment Ratio Ratiocost per between Ratio between betweengross ton of investment investment and investmentannual yield and gross net addition to and net yield

Tyne of Operation (1000 Yen) yield national income under formula

Land reclamation(little rice) 1S0 2.5 3.8 20.8

Seashore reclamation(miostly rice) 4L,0 7.3. 10,1 26.0

Upland irrigation(half rice) 170 2.8 .o0 14.0

Land improvement(mostly rice) 380 6.3 8.1 8.1

- 1 ton of brown rice equivalent put at Yen 60,000.

The Mission considers a change in the formula to appraise the benefits of projects

necessary to arrive at a more equitable program for further work of the LandBureau.

79. Of course, it las more than a formula Lor "justifiable expenditure"l

which led to this result. Partly, land improvement is being favored because it

promises the impro-iement of economic conditions of already settled farmers, and

local authorities are naturally inclined to supDort their claim for assistance.Also, methods of upland reclan2ation, grassland managenent and upland irrigationare by far less highly developed thani paddy land management, a-nd the latter has

a traditional advan'age for that reason.

80. The Japanese authorities themselves have taken informal account of the

unsatisfactory nature of the appraisal formula and in particular instances,especially in regard to Hokkaido, have introduced modifications which have some-

what mitigated some of its worst effects. In land reclamnation, one of the

factors in asses,srient of priority rating is the numlber of families settled. In

an attempt to raise the rating, new farms have been made too small, which of

course is no remedy. Also, for Hokkaido, the number of points needed for a high

priority rating has arbitrarily been reduced,, taking imto accounit the followingpoints.81. Rather than adopting such devices,. the MIission recommends eliminationof the bias against land reclamation tirough a revision of the formula used in

the rating system.

g) Economic limitations

82. The Govemment is aware that investments above a certain ratio to

expected results would be uneconomic. For snmall projects, it lhas establishied a

rating system designed to distinguish between economnic and uineconomic projects.

This method is deficient mainly for two reasons - non-economic considerations

(number of families settled, local political pressure) enter largely into the

calculation, and on the benefit side, all fiood is expressed in "brown rice

equivalent" on the basis of calorific value rather than on the basis of market

value.

83. For large projects, but only since 1951, the Land Bureau calculates a

"justifiable expenditure" as yardstick of profitability. This method is much to

be preferred. It takes into account "net return to farmers" as well as decreasing

or increasing expenditures on maintenance and operation on constructional elements

in the project. "Justifiable expenditure" is then calculated by capitalizingthe resulting total benefit., taXdng irito account depreciation (80 years for

major clams, 55 for irrigation arid drainage works) and 6% interest on total capitaJ

invested in the project. Six percent therefore is considered the minimum require'.

economic y.eld.

840 The main objection to the application of this formula of justifiablee-xpenditure is the calculation of "net return to far-merst" as described above.

The result is that for land irmprovrement works an investment equal to about

10 times increased annual gross product is considered marginal, whereas for

land reclamation the maximum investment allowmTable is about 3.5 times expectedannual gross product.

85.. Using a price of Yen 63,000 per ton of brown rice equivalent, thepresent method of calculation arrives at a maximum limit of investment ofYen 630,000 per ton in a land imiprovement project and Yen 220,000 in a land recla-mation project. In a state-operated project, where the Government makes a contri-bution of 60% (cf. para. 92), it could invest a maxirum. of Yen 380,000 per tonof brown rice equivalent for land improvement and Yen 130,000 for land reclama-tion. If land reclamation were to be evaluated on equal terms with land improve-ment, the higher figure would apply to bothQ

86* The Mlission recommends raising. thel required miniimum economric ,yieJ.+onland improvement projects from 6%' to 8%, not because either of these figures issacrosanct but because so many projects oSfer a larger return. On this basis,miiaximum "justifiable expenditure"l would amount to Yen 44., 000 per ton bwrown riceequivalent (Yen 65,o00 per koku). This is about seven times the value of anmual

gross product or the value of one ton of rice in order to produce annuallyone koku, For the maultitude of snmall projects, the Mlission considers this asimple, but more adequate yardstick of priority than the complicated point-ratingsyNstem at present applied.

87. Mleasured against this scale, the average cost of paddy-field improvemnentand seashore reclamation (para. 70) is too high. As the table in para. 72shows, this is mainly the result of the very high figure for the large numberof "projects -under investigation" on the mainland. On the other hand, landreclamation and upland irrigation projects are, on the average, well within the

limit on justified investment,

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88. Another poinlt of consideration is the return to the Governmentout of its investment of taxpayer -.ioney in land developmnent. 'Uith a subsidyrate of 50%, the Government will have to invest in a project just withinthe limit of justifiable expenditure, 500 units to see agricultural pro-duction raised by 150 units. In add.ition to this result, the project pro-vides labor opportulnity for unemployed people, and creates secondary income_,increasing national income by about 200 units in total. Government incomefrom direct and indirect taxation on the average is 22% of national income;in the rural area, however, per capita income is only 80%a of the n.ationalincomle, and the rate of taxation should be around 18%. Tax income may there-fore be expected to rise bY 36 units, or 7.2% of government subsidies.Savings on current expenditure (maintenance and food subsidies) vwould haveto be added to this return. This w!ould be above the interest rate on govern-ment investment funds, and may be considered adequate to justify the expendi-ture.

h) Government subsidies and fermers participation

89. In Japan, all land -vhich can ea.sily be settled and cultivated haslong since been developed by individual farmers or villages. The topography,the soils and the clirnate of Japan make it expensive to increase the culti-vated area and ,yields already are high. Projects of any magnitude have to besponsored by the Government, mainly because irndividual farmers or farmerstassociations (cooperatives) could never finance such projects.

90. As in ranay other countries, the Government subsidizes land reclama-tion and land improverment projects. The Japanese system is not based, asin count,ries ,-,rith large undeveloped land resources (such as the U.S.A. in thenineteernth century, A.ustralia, "frica or Latin American countries) on lpndgranbs, concessions, roads and other public facilities. Rather) as in mostEuropean countries and present-day U.S.A., the Japanese centrl or localgovernment carries ouLt works or gives financial assistance to fq.rmers andsettlers for land reclamation and irmprovement.

91. The Goverrnment started subsidizing land reclaaration as early as1919, for land improvement in 1923. Graduially, these mrteasures became morediversified and refined. The level of tihe subsidies now generall,y rangesfrom 40-604i ol the tltal cost (for land reclamation in thae U.S.A. this figureranges fron 40-80%).

92. The Governrmient pays in full the cost of so-called constrLction works,related to land reclamation (main roads, bridges, major drainage canals).Settlers pay a small percentage for local roads, sclhools, hospitals and other"joint expenaoitures". For direct reclt.iiiation anld improvement works, the Landbureau pays out of' its budget:-

- 60% if large, executed by the 'State- 50% if mediuma, entrusted to lPrefectures- 40/% if small, carried out by farmers? associations.

93. .hereas to Japan as a wirhole the economic benefits of producing anadditional ton of food are approximately the same, regardless whether it

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becomes available through a land iraproveraent or a land reclamation project,there is a great difference from a financial point of v-iew. The repaynientcapacity of a farmer who finds his fields producing more, is a higherpercentage of gross yield than that of a new sottler.

9h. The subsidization schedule in Japan does not make -that distinction.It should find its expression in the percentage subsidy or in the terms ofrepayment by farmers or both.

95. The Government has alleviated the situation some-what by providingfull government paymiient for "major construction workss" (main roads andbridges) in land reclamation projects, but this is not enough. Anotherpractice is the carrying out of a. great number of very small land reclara-tion projects byr the State, as a wa-y to increase the percentage subsidy. Onthle other hand, the Government subsidy arid financing through the A.F.F.Corporation of land relhabilitation a.fter storm damage may be overgenerous.An adjustment of the subsidy system miglht over a pexrod of time mnke iteasier to raise fundcls necessa-y to bring newi land into production and easethe financial burden on the Government.

96. Farmers must invest or pay interest anid am;ortization on 4o-60% ofthe conastruction cost of the project. In addition, they often have to findcapital for livestock and implerments. 1uch of this has to be borrowed.Their capacity to repay arid therefore the possibility lbf limiting the subqsiddy,depends on the terms even rmore thein on the amount of the loan. In Ja.pan,farmers could borrovw from cooperatives (10%, 5 years), the A.F.F. Corpora.tion(6.5$/, 15 yrears) or the Settlers Fund (3.65%, 30 years). The following tablecompares the annuities to be paid by farmners in a case where total capitalexpenditure is 1000.

Farmers Annuitr Payment due *)Amountof loan Cooperative e AJ.F.C. Settlers Fund

Subsidy rate L0 600 155 63 33" i 50 $00 130 52 27

it " 60 400 104 42 22

*) The annuity on a loa-n of 100 is 25.9 to the cooperative, 10.5 to theA.F.F.C. and 5.4 to the Settlers Fund.

97. In the case of a project where annual gross benefit would beone-seventh of total capital expenditure (150) farmers increased money incomeis 100 (70% of gross product) if the land is irmproved, and 45 (30%5 of grossproduct) if the land is reclaimed. The table shows that the A.F.F.C.financing is suitable for land improvement, but too expensive for land settle-ment. However, Settlers Fund financing of land reclamation is possible.Short-term cooperative financing at 10% interest can only be used forcomplementar7y highly productive investments.

98. The Special Fund for Settlers is working vwell; but it has notenough funds.. During the last five. years, the Government has made availablethrough the Settlers Fund, an amouwnt of Yen 7.9 billion, and has made

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provision for approximately 15,0O0 settlers, an average of Yen 559,000 persettler. In addition, the Government spent on direct reclamation peraverage new farm of 3.5 hectare, Yen 1.1 million, of which 40% is reinmburs-able. The Settlers Fund has no provision to finance the latter. It is toosmall to finance even the "inventories capital', of all new settlers. At arate of around Yen 1 million per settler, which wiould be needed to equip thenevt farmers, the fLund can finance only 2,000 new farms animally, equivalentto about 10,000 hectares new land, altogether too small for even the presentland reclamation program. Even if farmers themselves could provide half ofthe funds needed, the Settlers lund needs Yen 6 billion annually if thetarget of 80,000 hectares reclamation per year is to be reached.

99. Summarizing, the i10ission concludes that the Land. Bureau has acquireda broad experience in rating many hundreds of large and sma.11 projects, andin broad terims has managed to keep avway from highly uneconomic projects.However, it is spending too imuch on a number of costly land improvementprojects and among "projects under investigation" many are uneconomic. TheMJission recommends strongly tlhat the Land Bureau reapp'aises its presentprogram. As a first approximation, tlhe Government should, out of its budget,invest no more than Yen 250,000 per ton of brown rice equivalent (Yen 35,000per koku). Total investment should not exceed Yen 65,000 per koku.

100. Also, the Land Bureau should review tne adverse implications ofsome features of its priority rpting, subsidization and financing policies,wlhich can be summarized as follows:

a) Land improvemrient is given an unjustifiable priority rating overland reclamation;

b) The econonmic value of non-cereals is underestirated (making for abias toward paddyr field development);

c) The subsidy schedule favors land improvemenat and expansion ofexisting farms over land settlement;

d) Too many small reclamation projects are carried out by tlle centralgovernmentI

e) In land settlement, the area actually reclaimed in individual farmsis generally too small;

f) The Settlers Ftund is far too srmall for a vigorous program of landreclauation.

g) The Land Bureau has undertaken too manay projects at the same timeand consequiently, the average time to finish a state-operatedproject 7s too long.

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X. THE; PROGRAiA FOR THE FUTITRE

A. General Direction

101. Japan has demonstrated extraordinary resourcefulness and skill indeveloping rice cultivation and meeting the needs of a constantly expanding popula-tion. Until recent years this has been sufficient to hold her requirement forimported food within bearable proportions despite the population increase. Now,however, Japan is faced with a new situation. As noted in an earlier paragraphprospective returns from new projects to increase rice production are constantlygrowing smaller, and this trend must be expected to continue. At the samle timethe population increase goes on, as does the destruction and withdrawal of arableland from cultivation. Demnslds upon Japan's limited capital resources for suchother essential activities as modernization and exransion of industry, and theprovision of irmportan-t public works are, and may "be expected to continue to be,insistent and heavy. Despite the high quality of the work already being done byan excellent staff only a still better and considerably accelerated agriculturalprogram can prevent serious deterioration of Japan's food position.

102. As pointed out earlier in this report, Japan still possesses much un-cultivated arable land and could without excessive investment increase- her cultivwted area by 30-40%. Vigorous exploitations of these resources could in the futurereverse the otherwise inevitable trend of increasing dependence uoon imr.portedfoodstuffs, ease the prospective balance of paymaaents situation, and strenghtenJapan's econornic viability. The early use of' these resources will, however,require important shifts in the emphasis of Japan's present agricultural programand the adoption- of unfam-iiliar techniques of land preparation and use.

103. In establishing an agricultural development program for the next 10 yearsaccount has to be taken of impor.ant competing claims against national revenues.While it would seem impracticable and most unwise to reduce the agriculturalbudGet (and indeed in the opinioni of the ±Lission total agricultural expenditureshould be increased)at the same time, it will be more than ever essential tomake the best possible use of the available funds by making shifts within theagricultural budget by concentrating on those projects which would produce thelargest amount of food for the smallest outlay. This will imply increased expendi-ture on land reclamation at the expense of land imiiprovement. It wJill mean alloca-ting funds to projects on a basis w1hich will prompt the most rapid possibleexecution so that benefits mnay be realized as soon as possible and imDracticableimmobilization of large funds avoided. It will inply a rigorous review of alluneconomic projects and programs arnd the application of funds so saved to moreuseful undertakings. It will mem fostering acceptance by the Japanese people ofa wi der variety of f oodstuffs through increased supply and improved marketing.

1o4. Not all of these steps will be found agreeable. But the inevitablealternative of a constanltly weakening dormestic food supply situation and acontinually increasing dependence upon other nations Lor the requirements of lifeitself cannot afford a more appealing prospect to any Japanese.

105. In accordance with its terms of reference, the Itssion has considered,in continuous consultation with Japanese officials, what allocation of resourcesto particular fields would tend to secure the greatest production increase withinthe next ten years.

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106. The IHiission has estimated the task which lies ahead for the Land Bureai,if it should sponsor the carrying out of a program designed to develop theproductive capacity of Japants soil at the samne rate as demand increases tlhroughincrease in population.

107. It recognized that iniereases in yield on the existing cropland (of. Par.41Jmay Just about offset the loss of land through nataLral disasters and expansionof cities (cf. Par. 26). The Economic Council Board estimates a population of98 million by 1965, 10 million (12%) over 1954. On this basis, it would benecessary in ten years' time to grow about 2.1 million tons of additional food(brown rice equivalent) in order to keep imports at the present level. Thiswould be 15% over the present level of prcduction.

108. The following table indicates, in broad terms, what would be needed toachieve this goal:

Hectares Cost to theto be Annual yield Governinent

Operation developed tons b.r.e. Billion Yen

Land reclamation 800,000 1, WC),hOOOO 210Upland irrigation 200,000 300f000 5°Land improvement l,0U0,000 500,000 125 *

Total 2,OOO0 0O 2,200,000 365

7) Assumed at Yen 250,000 per ton brovn rice equivaent.*t) A little over U.S.$ 1 billion.

In addition, credits to farmers would be necessary, amounting to about halfthe amount of Government expeiditures (about Yen 100 billion through theSettlers Fund and Yen 75 billion through the A.F.F, Corporation). It shouldhowever, be kept in mind that these credits would be revol1ving so that theseentire sums would not have to be provided by the government. Over the next10 years perhaps Yen 14o billion in newJ fuids will be needed.

109. The average requirement per year compares as follows with the 1954budget (Table IV):^

1954 AverageBudget Requiirement

Land reclamation 13.0 21*0Land irmprovement and upland

irrigation 17.7 717.Settlers Funzd 1.5 9i.0A.F<F.C, -* 12,0 5.0

Total 252.5

* On the assumption that at present, out of Yen 20 billion appronriation,Yen 12 billion is used for f'lnaxicirig.land development and Yen 8 billionfor land restoration.

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What is needed therefore is an overall increase in 3xpenditure of Yen 8 billiondirected entirely to land reclamation and a major shift in presently availableloan funds towards the Settlers Fund.

110. In the absence of such program, the effects on the future balance ofpayments ol Japan would be far reaching. The demand for basic foodstuffs beingvery ilnelastic, additional imports of over 2 million tons of brown rice eqpiva-lent would become necessary within ten years, in order to avoid soaring foodprices, followed by higher industrial wages and an adverse effect on Japan'sexports. But it is at least very questionable whether Japan could increaseits exports sufficiently to take care, not only of the nornmal increase in demand

for foreign raw materials, capital goods and consumer goods, but also earn%* anadditional U.S.41 200 million which would be needed to satisy the urgent needfor food. On the other hand, dormestic food production requires in Japan verylittle foreign exchange outlays and every tosn of food produced provides - giventhe inelastic consumption pattem - almost for its whole value a net iiaprovementin the balance of payment of Japan. A very vigorous lald development programtherefore is a matter of life and death for Japan.

Ill. The Mission made no special study of forestry development in Japan,but it noted that a large part of the publicly-owned forests, perhaps 10-15rnillion hectares of it, is underutilized. At the same time, private forestsare generally overcut, anid Japan's imports of 1lumber and cellulose are burden-some. To exploit these. resourcbs; it will be necessary to build penetrationroads and provide facilities and local labor. The best way to arrive at thisgoal of speeding up the exploitation of the government-owned forests is to makea start with "initegrated water-shed development", where the valley bottoms andplateau are put under crops or pasture and the slopes remain under forest whichwould be scientifically exploited. Farmers would, as in many mountain areasin Europe, be forest workers during the winter season, thus supplementing theirincome and providing the necessary local labor.

B. Action

112. With regard to action which the Government can undertake without delay,the Mission recommends concentration of available funds on projects underconstruction in order to reduce the sinklin of funds into projects for a longperiod without much effect on production. The Government is aware of this needand had already decided not to start any new land improvenment project in 1954.

113. The 1'iiszion also recommends a critical reappraisal of the projectsalready under construction, leading to the dismissal of non-econoric ones,and the postponemen-t of such projects that could later be inLtegrated intolarger, more economic schemes.

114. Adjustmaents in the subsidization and insurance schemes which now costYen 26 hillion aznnually will release funds for more econolmic purposes,

*) Adding the necessary imports of raw materials and fuel, this might meanadditional exports of $3-400 million.

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115. It might well be possible to accelerate the execution of certaincurrent projects through the use of heavy imported machinery and th- LandBureau has made a survey with an eye on possible Bank financing of suchmachinery. They concluded that this would involve 71 projects, and anamount of U.S.$ 1,250,000 in imported equipment. In a number of cases,this would definitely be profitable, The Hission did not pursue thisline- for possible Bank financing because of probable administrative difficul-ties of handling a project of this type. It would involve a reappraisalof many projects under construction, and the hope for Bank financing mighteven cause serious unnecessary delays.

116" Moreover, the Mission felt it to be more important for the Bankto help Japan develop new types of agricultural prod'uctionl. As indicatedabove, these can be found in upland irrigation, the use of modern imethodsin seashore reclamation, and - most challenginlg - the development of thehuge potential of upland fields through mixed farmirng and grassland develop-ment 9

117. Exclusive concentration on paddy land improvement could help rmieetshort-term needs. But as noted above in par. 72 potential returns of suchprojects are constantly decreasing and at the end of ten years if new avenuesare not opened up and new techniques mastered the development of new sourcesof food production will come to a dead end. The food de-velopment programmust look ahead more than 10 years. New imethods ca-not be introduced on alarge scale without a very thorough preparation, and it therefore is neces-sary to start now along new lines. The projects described belo are- astepping-stone to a more general application of the methods indicated.

-. ]pecfi&PoSct

In line with this approach, the Government has now requested theBank's assistance in financing four projects and the Mission has concerntratedon these. It found them suitable for further investigation. None of themi isyet fully prepared, designed and engineered, ready for loan negotiations.But on the basis of its general investigations the M4ission feels tlmt aprima facie case for these projects can be established. These projects are:

a) Aichi irrigation project

b) Hachiro lake reclamation project

c) Shinotsu peatland development project

d) Mechanical land reclamation and cattle importation

A short and preliminary description of these four projects follows.

3, The Aichi Irrigation Project (Mlap I)

Its main purpose is to improve and extend the irrigation of around3.3,500 hectares of paddy and upland fields east of the city of Nagoya. Itis especially the irrigation of ll,OOO hectares upland fields, a newfeature in Japan, which makes this project highly attractive because itpromises large benefits and because of its demonstration value. A rock-filldam, 90 meters high and 244L meters long would be constructed on the Otakiriver, a triburtary of the Kiso river, creating a reservoir with 97 million m3to supplemiient the flow of the river for irrigation purposes and to supplementthe flow of the water through 14 existing power plants in winter. At thedarn site a sliiall (18,000 kw) power station would be built. Part of tlle waterwould also be used to supplement inidustrial and potable water for Nagoya andsmaller cities in the area.

:120. The Ivlinistry of Agriculture has been studying the project since 1951and Paci.fic Consultants, Inc., an American engineering finrm, has surveyedthe mrin construction elements, particularly the hydrological and geologicaldata, the dam site, dam construction, the intake and layout of the main canal,and the effects on power prodaction. A final report of Pacific Consultantscan be exrected shortly. In their draft report they estimated the total cost,including interest during construction, at about Y 25 billion, to be spentover a 5-year period.

22Q. The Mission. checked on the calculation of the benefits to agricul-turp and considered an annual gross product of Yen 5 billion and net benefitto farmers of Yen 2.5 billion a conservative estimate. Water sales wouldbring about Yen 460 million, a-nd the power would have a value of Yen 450Million. Total annual net benefits, after dedluction of operational andmaintenance costs can conservatively be estimated at Yen 3200 million, or13% on total investment. The foreign exchange savings, from the expansion ofcereals production alone, amount to 06 million annually. These figures make

? o

the project prima facie attractive for Bank financing, but many organizational,

financial and man:agement problems both in con}struction and operation have

still to be worked out.

122.. The Mission feels that an autonomous corporation as envisaged by

the Government could well be created for the construction and operation of

this project. In this complex project, touching upon the spheres of at least

tlree ministries and five prefectures, it is very important to assure single

management. In the opinion of the Mission the corporation could and should

be put on a self-liquidating basis, provided the government puts up a subsidy

for the land development part of the project, under existing regulations

amountl.ng to about Yen 7 billion. Provisionally,. the need for construction

machinery and payments in foreign exchange for supervision and foreign con-

tractors, has been estimated by the Land Bureau at 4lO million and the

governmernt is requesting a loan to that amount.

Unless great unforeseen obstacles arise in the further preparation,

the Mission's estimate is that it will take 3-4 months to prepare a technical

report on the project. Further discuissions on mnatters of a technical nature

such as the text of the proposed bill to establish a corporation, and arrange-

ments with local bodies and the Kansai Power Company are necessary. In

addition, agreement on further preparations for detail engineering design,

supervisi-on and arrangements for foreign contractors will have to be reached

before a loan coald be made.

b) Hachiro Lake Reclamation Project (Map II)

124- Hachiro lake is a shallow lagoon, about 20 lcu long and 10 1Im widelocated northwest of Akita, on the Japan sea side of the main island Honshu.

By cutting off the lake from the sea with sluices and building a new ouatlet,

it would be possible to reclaim the larger part of the lake bottom (13,000 ha.)

as first-class land and to increase the productivity of presently cultivated

areas around the lagoon.

`125. The project has been reviewed by Dutch engineers in early 1954, and

it has been concluded that the final design of the new channel and drainage

sluices has to be determined in model tests. The Government is now engaged

in assembling the necessary data for this test. It will take another l-l!,

years before the results can be known. It is not expected) however, that the

outcome of these tests will greatly affect the construction costs. Thle Mission

recommended that it would be desirable to have the layout of drainage channels,

roads and farmns in the new area redesigned, in order to arrive at a less

expensive and more practical solution. Furthermore, detailed engineering

on the main dikes, and other tecnmical features of the proposed "polder" is

necessary. This preliminary work will have to be done, before the Bank would

be in a position to make a full appraisal of the project.

U.26. The total cost, including interest during construction and thesetting up of 4,000 new farms, is estimnated at Yen 15 billion. Most likely,

appreciable savings will prove to be feasible.

31 -

127. The expected gross benefits from increased agricultural production

amount to Yen 3.2 billion anlnually, (adding about Yell 2.2 billion anriinially

to the national income in the agricultural sector, a savring of $8 millionannually on import of food). The new land, acquired tlhrough the project,

has an estimated value of about Yen 10 billion and a large part of this

amount could be recovered if the land were sold on an installment basis.

According to present subsidization rules, the Goveernment would participate

with about Yen 7.5 billion, in the cost of the project, and lo-al authorities

would finance through annual payments about Yen 2,5 billion« Very tentatively,foreign exchange expenditures for the carrying out of this project might

amount to $3 iiLillion.

128G The available data are sufficient to warranlt the further technicalpreparation of the project, ven. if no savings on cornstruction cost prove

feasible, the return on total capital investmiient, after depreciation, would

be about 13%. No great expenclitures are needed before the outcome of thetechnical studies is baiown and the Japanese Governenent is prepared to pay

for this - including the foreign exchange involved from their own resources.

In tm pending loan application, it is itidicated that la-ge expenditwures are

to start in l956/5. It,. t)ierefoM, appears that no-loan Otom the-Bank isimmediately needed.

c) Note on the Developmnent of the Ishikari V y (iap III)

129. The basin of the Isbikari river is situated in the central part of

Hokkaido, the northern island of Japan. An overall plan for its develop-menit was prepared boy the Hokkaido Development Agency. This plan includes the

iimprovement of eleven rivers, draina-e and irrigation of an area of over

l00,OVO ha. and soil dressing (i.e. bringing of 5-6 cm of soil on peat land)

for 30,000 hectare. It involves the building of 5 multipurpose concrete

dams, 8 earth dams, the establislhnent of pumping stations for irrigation, and

the construction of 218 Im of imain roads and 8 powxer stations. Parts of

the river regulation, flood control and power development construction are

already completed or are under constructiono

130. The Ishikari Valley is the only large area in Hokkaido where rice

can successfully be grown. A detailed study by the l[ission shows that -

thanks to special treatnment of seedbeds (covering with oiled paper and other

methods) and the development of new varieties - the rislc from coldc weather

has been effectively overcome. Average yields of rice of 2.7 tom/ha. can

be expected, which makes rice by far the best yielding crop in the area.

131. The improvement of the total Ishikari Valley is a long-range job,

and its parts are not very closely inter-related. The basic requirement for

land developrmient is the regulation of the Ishikari river and its 10 main

tributaries. This work has been completed in the lower reaches of the rivers.

Thereafter, the carryinrg out of agricultural projects can be carried out

independenitly in each of the six regions into which the area is divided.

132. The Sh-inotsu Area (lilap IV)

The YMission, in ag,reement with Japanese authorities, recoyammends for

further study and project execution a concentration during the next few

years on the ,ninotsu. This area is located in the lower part of the lshikaribasin, on the right bank of the river. Here, about 21,500 ha. of peat andclay soil can be reclaimed or improved.

j33- A very provisional estimate of costs is Yen 10 billion, and thevalue of expected increase in production slightly over Yen 2 billion annually,These figures indicate that the project justifies further study and prepara-tion. As a matter of fact, the alternative h3re is not whether or not theproject will be executed, but rather what methods will be used. So much ha$already been spent on river regulation and main draiiage canals that onlythe execution of the remainder can make the earlier investments pay, Atpresent only light equipment is being used. It appears that the use ofimported heavier construction equipment (bulldozers, shovels, excavators, dumptrucks) would reduce costs and construction time. In an experiment carriedout with dump trucks against light-weight railway in transporting earth forsoil dressing, a saving of 20% was experienced. Similarly, in the constructionof earth dams, roads, drainage and irrigation canals, savings are Possiblethrough the use of heavaier equipment.

z 4.42 The detailed planniing by the Hokkaido Development Bureau, especiallywith regard to unit costs and the ccaistruction schedule has so far beendeficient. The Mission has suggested a method for better calculation andpresentation. It will take at least 4 or 5 months to make the adlitionalsuirveys and draw up a reasonably accurate plan. The type and amount of heavyimported equipment needed depends on the method of elcecution chosen. Verytentatively, the PIission estimates that V2.5-q3 million might be needed, butupon completion of the Shinotsu, thLs machinery can be used in other parts ofthe I,hikari Valley.

135 Part of the program-a calls for reclamation of peatland -- this isdiscussed in the next section of this report.

) MIechanioal Land R;eclanation and Import of Cattle

2136. There are exztensive uncultivatl;e areas, aggregatin-g more than 2million hectares, mainly on Hokl-raido and the mountain valleys and p lateausof northern Honshu, which could economically be transformed into cropland andpasture. Up till now, wiith the exception of an ill-designed war-time experiment,reclamation has been done by hand, animal power or with light equipment.

The use of heavier, specially designed equipment could substantiallyreduce the cost of reclamation (from above Yen 100,000 per hectare to Yen25,000-4O,000), speed up the operation and enable new settlers to start withan economic production unit (6 ha. reclaimed out of 10 ha. as against 2-3 ha.at present). The Japanese Governenit has added a request for Bank assistancefor this purpose to its original requests. The MIission recomimends startingwith 3 pilot projec:ts, to operate in three areas where soil and vegetationdiffers greatlyr. These are: a) Ishikari peat land; b) Konsen Plain inEaster Hokkaido; and c) KamLkita area in Northlern Honshu.

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138. In the latter two cases, only mixed farming is economically feasible.Jicvievex, there are not enough young cows availalDle to start even the existingnewly established farms in the right way. Since they are indispensable as'"grazing machlnes" on newly established pastures, there is agreement thatthe import of young cows should be inserted in. the project,

139, The Mtission considers the potential value of mechanical land recla-mation far exceeds anly other means of increased food production. It ishighly important that this project gets started in the right way. The Missionconisiders it essential bhat the Govemiment make use of an expert wqith broadexperience in these matters even in an early stage of preparation. An autonot-mous "Mechanical Land Reclamation Corporationf7 could be organized, working ona no-profit - no-loss basis for government agencies and settlers associations.It is not yet possible to determine the types and quantities of machineryneeded in three pilot projects. As a first approximation, three tractorpools could be established with $1 nillion worth of imported equipment.

140. In addition, it is indispensable to import calves for the equip-ment of new (and recently settled) farmers in order to establish good pastureland. The Eission recommends a program of about 2,500 calyes amIually, wllichcarn be obtained in New Zealand and Australia at a landed cost of about$2"Q,000 a yrear. The local currency costs, largely to be channeled throughtlhe Fund for Settlers, have been estimated by the Japanese Government, overthe six.-year lifetime of the equipment, at about Yen 5 billion (one-thirdof which is included in the item on land reclamation in the Ishikari area).

iLi. Reclamation in the Kaamakita district is especially recommendedbecause the district is located in the heavily forested part of NlorthernHonshu. The Missioln fovnd this area (Tohoku) of special interest, becauLse

integrated agricultural/livestock/forestry development would be most appro-priate here. In a number of cases, the valiue of the standing timber mightbe sufficient to pay for costs of land reclamlatioln. M1-ore important, however,development of this area would provide food and forest products on a sustainedbasis.

142. No Bank loan could be made before many physical and organizationalproblemse have been taken in hand. As a first step the Land Bureau shouldentrust the preparation to one iman with mroven ability and a small staff.It would be advisable to have a Bank consultant to assist lhin in working outthe plans.

143. In view of the great potential, the Mission reconmends an expan-sion of this program (aided by a further Bank loan) after the necessaryexperience has been accumulated, perhas two years after the start of thepilot projects,

34 -

D. Local Currency Availability

144. In. each of the above-mentioned projects, further preparatory work

has to be done before the projects can be appraised in detail. But the ef-

fect. on financial resources must be considered jointly. Although larger

than usual, none c the four projects in itself would put great strain on

the budget of the 1Viaistry of Agriculture. Combined, and carried out in a

time much shorter than presenltly is customary, their inXpact on the budget

is considerable. Although detailed cost estimates are not fim yet, the

following estinate indicates the size of the program as a whole.

(Foreign Exchange)Total Cost Billion Yen Million

Project Billion Yen equivalent U.S.$

Aich 24.0 3.6 10.0

Hachiro l.0 1.l 3.0

Shinotsu lOoO 1.1 3.0

Mech. land reclamation* 3.0 0.o5 1,5

Sub-total 5 37.

Possible fur;ther mechanicalland reclamation 14.o0 1i1 3.0

Total 70 37 v 20.5

* After deduction for land reclamation in the Shinotsu

peatland.** About $190 million equivalent.

l14. These projects would form part of an expanded program for the Land

Bureau as outlined in Para. 109. As there noted, the total program would

require an additional Yen 8J3 billion annually over the next 10 years. The

four projects under consideration could be carried out over a period of

seven years; their average cost would be Yen 9.3 billion annually, or after

deduction of imported construction equipment and cattle, Yen 8.3 billion

an riually.

146. It camot be expected that these funds could wholly be found within

the budget of the Mitistry of Agriculture without serious interference with

other highly-important work. But it is reasonable to assume that Yen 3-4

billion annuallr could be found in other parts ot" the MGinistry t s budget (e.g.

on food subsidies and the insurance scheme) to. Ceirnforce the budget of the

Land Bureau.

147. This leaves the Government with t?,& I,;,sk of raising an additional

amount of Yen 5 billion per year up to a tot`I..l osEf Yen 35 billion for the

carrying out of the four large projects. qh.s tj,uestion arises whether the

Japanese Government could make Yen 5 billion. ;zri-iually available without re-

sorting to inflationary methods of financing.., In view of the order of mag-

nitude, as compared with a government budgel-l Yen 1.,000 billion and Trust

- 5-

Fund investment of Yen 150 billion annually, the 11ission came to the conclu-sion that a release of Yen 5 billion annually should be possible, providedthe Government continues to give high pr-iority to the development of fo.dresources.

148. So far, the Governmiient has financed land improvement projects througha combination of direct budget appropriations and agencies malking loans tofarmers. In its application to the Bank, the Govermient has introduced theidea of (a) Corporation(s) 'which would borrow, both externally and inteernally,for the execution of the projects. To some e%tent, the project,s under consid-eration justify the use of long-term, low-interest loans. The Aichi Corporationcould, on the basis of payments by prefectures, cities, the Kansai PowerCompany and farmers, be self-supporting with a loan of Yen 15 billion at 5%.In addition, Yen 20 billion of long-term, low-interest loans to farmers couldwell be channeled through the "Loans to Settlers Fund" for the execution ofthe project.

149. In its application to the Bank, the Government relies heavily onthe availability of counterpart funds under the provisions of U.S. PublicLaw 480 (sale of surplus agricultural commodities againlst local currency).During NoTvember 1954, the Government negotiated the purchase of such surpluscommodities to an amount of U.S.$ 85 million, out of which 460 million tobe made in the form of a loan in Yen currency to be used "for Japant s domlesticeconormic development, inclucding agricultural developriient, and for regiolnaleconomic developmient". Even if the current negotiations with the U,S, Govern-nment do not lead to earmarking of £unds specifically for agricultural projedts,their release should free sums from the Trust Fund Bureau, now intended forother purposes,which could be redirected to agriculture.

150. The undertaking of large projects, using heavy equipment, and carriedout through large corntractors, requires that the execution proceed1. withoutinterruptions for financial reasons. Therefore, any undertaking of the Bankto assist in firnancing large new agricultural projects would be subject to aclear understanding with the Japanese Government as to the finding of the'iecessary local funds.

LOCATION MAPOF

AICHI IRRIGATION PROJECT ,I AMnA H/ RESERVOI-

JAPAN r-HCATCMENr AREA

MAIN CANAL

LATERAL CANAL -

TUNNEL

SIPHON --. 8 /

BENEFITTED AREA

CATCHMENT AREA

0 5 10 15 20 KM

NAGOYA

NOEBR ,1I5J

........... ...

TOOL .. ...

- ~I :::IRR. A...

....... v,,,

MIA:.:::A WA BA

NOEMER 15

PRELIMINARY DESIGN OFHACHIRO LAKE

RECLAMATION PROJECT

HHAIVIVE

DIKE

dY ~PUMPING STATION o<

l ~~~SLUICE :

,NOVEMBER, 1954

1CTADOMAAR9 DAM

DEVELOPMENT PLANFOR PEAT LAND

IN ISHIKARI RIVER BASIN.

JAPAN

'V.j i, (4 t SASAHIGAWA

f/

ISHIKARI RIVER~

- \.SH 5 2N

-II.

RIVER IMPROVEMENT-MAIN DRAINAE COURSE

P-OWER STATION

BRIDGE

0 5 1 15 t 0Km

NOVEMBER, 1954

SHINOTSU REGION OFISHIKARI RIVER BASINDEVELOPMENT PLAN

JAPAN

DRAINAGE CANAL

PUMP-IRRIGATION CANAL .- Xa. ,

CATCHMENT AREA ____

DAM-RESERVOIR

DRAINAGE IMPROVEMENT ;

NATIONAL ROAD >

PREFECTURAL ROAD - - - --

RAILWAY

TOWN e

0 1000 2000 3000 4000 METERS

NOVEMBER, 954